Programming note: Modus occasionally sends timely emails in addition to, or in place of, the regular Friday newsletter.
This morning, Bank of America published its first family office report, a study that confirms frequent observations of offices but also delivers its own insights.
Did the world need another family office report? Elizabeth Thiessen, the head of family office solutions at Bank of America Private Bank, says the answer is yes. Bank of America’s report is not a simple response to competitors; it’s a reflection of its own clients and prospects and the daily conversations her group is now having with the wealthiest private clients, Thiessen told Modus. It’s similar but different.
Banks, asset managers, consulting firms, and membership organizations such as Campden Wealth and the Family Office Exchange have been surveying single-family offices for years and sharing their analyses and interpretations of the results. Many of their reports include information about office structure, governance, investment portfolios, the software they use, and their sentiments about markets and other matters.
Comparing family office reports side by side is thorny. Surveys that inform the reports have their own participant pools and ask different questions, so the results can conflict, as Bloomberg noted last week. Even the average strategic asset allocation at family offices can vary across reports because the surveys don’t ask about the same asset classes.
Individually, reports have nuances that can be useful or interesting. The UBS report, unsurprisingly, has more respondents in Europe. Morgan Stanley partners with Botoff Consulting on a report that delves deep into compensation for family office employees. Deutsche Bank’s first-ever report, released two weeks ago, focused on how family offices are using leverage.
Bank of America wanted its inaugural report to be one of the most robust yet. When bank employees tested an early version of its survey, it took an hour and a half to complete. That was too long. Worried that offices wouldn’t finish the questionnaire, the bank pared it down.
With a thinner version, Bank of America still believes it has captured the “hidden complexity” growing at family offices better than other reports.
“We wanted to understand, as family offices are making an increased allocation to different alternative investments, what are the downstream implications of that? How is a family office managing that increased complexity, that increased risk, that increase in payment needs and reporting?” Thiessen said.
Thiessen's team of more than 60 employees across the bank helps offices in the U.S. with their structure, banking, lending, investing, philanthropy, and other needs. Like similar groups at other banks (the one at UBS has doubled in size over the past three years), Bank of America expects offices will increasingly rely on it as their operations get more complicated.
Cash management and forecasting are good examples of less-talked-about headaches for offices that the Bank of America report wanted to explore further.
Out of the 335 family offices surveyed by Bank of America, one-third manage more than 50 bank accounts, and 40% manage more than 50 investment accounts. Larger offices have dramatically more. Among the offices managing $1 billion or more in assets, 32% have 100 or more bank accounts, and 39% manage 100 or more investment accounts.
And a lot of accounts means a ton of transfers. More than one-third of offices surveyed are making over 100 wire transfers per month. Although a small percentage, 14% reported making more than 500 wire transfers per month.
“Imagine doing that without, really, an institutional-grade commercial corporate banking tool to help you,” Thiessen said. “It's not sexy, but it's incredibly important to do it efficiently and securely.”
Seventy-six percent of offices said that automating cash forecasting was moderately or extremely important — slightly more than portfolio modeling (73%) and alternative investment analysis (74%).
If offices weren’t already working on improving their operations and technology to manage intricacies, the next generation of stewards, with different skillsets and expectations, are more likely to make those changes.
Much has been written about the impacts of generational wealth transfer. For family offices, this trend is different; it’s more about a shift of decision-making, rather than assets themselves. Children of centimillionaires and billionaires are typically longtime beneficiaries of their parents’ wealth. They might not be calling the shots on investments, but they are nonetheless afforded good schools, nice homes, and often much more (see: $95,000 Super Bowl tickets).
Bank of America’s report showed that, like the benefits of wealth, changes of decision-makers at family offices could happen well before a death-triggered transfer of power.
According to the bank’s survey, 87% of offices have not yet transitioned to a younger generation. However, 59% said they plan to do so within the next 10 years, and a third of them have a plan in place within the next three to five years.
“We found that really interesting,” Thiessen said. “That was a pretty compelling part of the study that I think deserves some discussion. That's going to impact how they use technology, allocations to certain investment vehicles. All of that is up for change when the next gen comes in.”
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Jobs
- Mack International is helping a newly established single-family office hire a president. This person should have at least 15 years of related experience, as they will partner with the principal to help determine strategic vision and priorities for the office today and in the future. The office will focus on preserving and growing the principal’s wealth so that he can focus on individual, family, and philanthropic initiatives.
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